Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2017 Supreme(SC) 980

SUPREME COURT OF INDIA
R.F. Nariman, Sanjay Kishan Kaul, JJ.
Dushyant N. Dalal and Another – Appellants
Versus
Securities and Exchange Board of India – Respondents
Civil Appeal No. 5677 of 2017 With Civil Appeal Nos. 10410-10412 of 2017
Decided On : 04-10-2017

Advocates Appeared:
For the Appellants : Abhay Kumar, Adv.
For the Respondent: Anip Sachthey, Adv.

IMPORTANT POINT
Interest on penalty or delayed payment belongs to substantive and not procedural law. Can be granted in equity for causes of action from the date on which such cause of action arose till the date of institution of proceedings.

Headnote:(a) Securities and Exchange Board of India Act, 1992 – Section 12A (a), (b) and (c) and Regulations 3 and 4(1) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 r/w section 1, Interest Act, 1839 and Section 4, Interest Act 1978 – Interest on penalty or delayed payment – Belongs to substantive and not procedural law – Interest can be granted in equity for causes of action from the date on which such cause of action arose till the date of institution of proceedings. (Para 11, 16)
       (1994) 4 SCC 276; (1997) 6 SCC 479; (2012) 7 SCC 462; (2004) 8 SCC 524; (2009) 7 SCC 372; (1993) Supp (4) SCC 136; (2011) 15 SCC 580; (2003) 8 SCC 648; (2011) 8 SCC 161; (2014) 6 SCC 335 – Relied upon
       (2007) 2 SCC 230 – Referred
       (b) Interest Act, 1978 – Section 4 – Enabling tribunals to award interest from the date on which the cause of action arose till the date of commencement of proceedings for recovery of such interest in equity – Instantly penalties collected to be credited to the Consolidated Fund – Cannot be greater equity than such money being used for public purposes – However, interest on such penalties would be chargeable under Section 28A, SEBI Act r/w section 220(2), Income Tax Act, and only prospectively. (Para 28)
       AIR 1938 PC 67; (1961) 3 SCR 676; 1985 Supp SCC 17; (2006) 5 SCC 258 – Relied upon
       (2010) 4 Mah LJ 691 – Cited with approval
       (c) Securities and Exchange Board of India Act, 1992 – Section 28A – Interest on default in payment of penalty – Appellant unlawfully gaining Rs.4.05 crores from sale of shares – SEBI demanding payment of Rs. 6 crores by stipulated time – On default in making payment imposing, by order dated 21.7.2009, 7 years ban from market instead of imposing interest – Ban being more severe than interest payment of Rs.6 crores made on 6.1.2014 – No error in not imposing interest – SAT incorrectly reading in the order an obligation of paying interest @ 12%a – Liable to be set aside. (Para 32)
       Facts of the case:
       The present appeals raise an interesting question as to whether interest can be recovered on orders of penalty issued under the Act and/or orders of disgorgement of unlawful gains u/s 28A of SEBI Act, 1992, when the said amounts have remained unpaid. SEBI has filed the appeal I penalty cases, whereas private respondents have filed appeals in the disgorgement case.
       Finding of the Court:
       Impugned orders cannot be sustained.
       Result: Appeals allowed.

JUDGMENT

R.F. Nariman, J.

The present appeals raise an interesting question under Section 28A of the Securities and Exchange Board of India Act, 1992 (SEBI Act), namely, as to whether interest can be recovered on orders of penalty issued under the Act and/or orders of disgorgement of unlawful gains, when the said amounts have remained unpaid. In the penalty cases, it is SEBI who is before us as appellant, whereas in the disgorgement case, it is private individuals who are before us.

2. First, the facts in C.A. 5677 of 2017, the disgorgement case. By an order dated 21.7.2009, passed by a whole-time member of SEBI, the noticees, namely Shri Dushyant N. Dalal and Mrs. Puloma D. Dalal, were found to have manipulated the demand for shares in the retail individual investor category (RII) and thereby distorted the integrity of the market. By doing this, they denied other RIIs of allotment of their legitimate shares in initial public offers (IPOs) of various companies and made an unlawful gain of Rs. 4,05,61,579/- to the detriment of other RIIs. The conclusion, therefore, was that they had employed fraudulent, deceptive and manipulative practices to garner shares meant for RIIs in the aforesaid IPOs and hence violated Section 12A (a), (b) and (c) of the SEBI Act, and Regulations 3 and 4(1) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 (PFUTP Regulations). Given this, the following directions were issued:

"a) The noticees [Mr. Dushyant Natwarlal Dalal (PAN AAAPD 5859Q) and Mrs. Puloma Dushyant Dalal (PAN AAEPD 2909B)] shall not buy, sell or deal in the securities market in any manner whatsoever or access the securities market, directly or indirectly, for a period of 45 days from the date of this order; and

b) The noticees shall disgorge the unlawful gain of Rs. 4.05 crores (rounded off from Rs. 4,05,61,579).

c) The noticees shall also pay Rs. 1.95 crores (rounded off from Rs. 1,94,69,558), being the simple interest at the rate of 12% per annum for 4 years (2005-09) on the unlawful gain Rs. 4,05,61,579.

d) The noticees shall pay the above amount of Rs. 6 crores (Rupees six crores) within 45 (forty five) days from the date of this order by way of crossed demand draft drawn in favour of "Securities and Exchange Board of India", payable at Mumbai.

e) In case the aforesaid amount Rs. 6 crores is not paid within the specified time, the noticees shall be restrained from buying, selling or dealing in securities market in any manner whatsoever or accessing the securities market, directly or indirectly, for a further period of seven years, without prejudice to SEBI's right to enforce disgorgement."

An appeal from this order was dismissed by the Securities Appellate Tribunal (SAT) on 12.11.2010. An appeal from the order of the SAT to this Court met with the same fate on 21.2.2011.

3. By a notice of demand dated 25.9.2013, Rs. 6 crores, along with interest payable within 15 days of the receipt of the notice, was demanded, failing which recovery was to be made under Section 28A of the SEBI Act. By a second demand notice dated 12.12.2013, stated to be in continuation of the first demand notice, interest was demanded at 13% per annum from 21.7.2009 upto 12.12.2013 amounting to Rs. 2,13,30,000/-. The appellants before us replied to the aforesaid notices of demand by a letter dated 13.1.2014, stating that the said amount of interest was not payable in law. This was turned down by an order dated 16.1.2014, passed by the Recovery Officer, SEBI, in which the objections of the appellants were rejected and bank accounts of the appellants were attached. By an interim order dated 6.9.2016, the SAT noticed that the appellants had already undergone the full debarment period and hence, attachment levied on their demat accounts, except account No.40333429, was released. By the impugned judgment dated 10.3.2017, the SAT ultimately found that, with effect from 18.7.2013, S

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2017 Supreme(SC) 980

SUPREME COURT OF INDIAR.F. Nariman, Sanjay Kishan Kaul, JJ.Dushyant N. Dalal and Another – AppellantsVersusSecurities and Exchange Board of India – RespondentsCivil Appeal No. 5677 of 2017 With Civil Appeal Nos. 10410-10412 of 2017Decided On : 04-10-2017

IMPORTANT POINTInterest on penalty or delayed payment belongs to substantive and not procedural law. Can be granted in equity for causes of action from the date on which such cause of action arose till the date of institution of proceedings.

Cases Referred (15)

SUPREME COURT OF INDIA
R.F. Nariman, Sanjay Kishan Kaul, JJ.
Dushyant N. Dalal and Another – Appellants
Versus
Securities and Exchange Board of India – Respondents
Civil Appeal No. 5677 of 2017 With Civil Appeal Nos. 10410-10412 of 2017
Decided On : 04-10-2017

IMPORTANT POINT
Interest on penalty or delayed payment belongs to substantive and not procedural law. Can be granted in equity for causes of action from the date on which such cause of action arose till the date of institution of proceedings.